Benchmarking to the Elite: Part 1

One of the elite management learning experiences in agriculture is the Executive Program for Agricultural Producers (TEPAP) at Texas A&M University, coordinated with leadership of Danny Kleinfelter. Now in its 24th year, this gathering of agricultural lifelong learners with an array of outstanding presenters who have a vast amount of background and experience is truly the “Super Bowl week” of education and networking in agriculture. As in the past, Dick Wittman, the challenging and well-respected farm and ranch consultant, shared a summary of the financial profiles of the participants. Let’s examine the results and ascertain how your business compares to the elite, in a sense that they want to improve the performance of their businesses, as well.

There is no doubt that many in the agriculture industry are quite profitable, being in the midst of the great commodity super cycle. Results from this group follow the trend. Profitability, measured by rate of return on assets, averaged 9.2%, while the median was 6.1%. This is in alignment with the top 20% of producers on many of the farm record databases. Some of you may be surprised that this return is not higher. This group was made up of many livestock producers, those with diversified operations and others who own a large amount of assets, particularly land, which increases the denominator when calculating this ratio, suppressing the return on assets.

Speaking of diversification, participants in this year’s group operated on average 4.1 different entities ranging up to a high of 17 entities. A median of nine full-time people were involved in their businesses, with a median of $4.25 million in revenue and an average combined revenue for all entities of approximately $14 million.

Concerning operating profit margin, the average was 22% and the median was 17.4%. Going north of the border, one Canadian grain producer indicated he hit a home run – or in Canadian hockey terms, the hat trick – with a profit margin on his farm of over 50%.

While the average debt-to-asset ratio in U.S. agriculture is hovering around 10%, this group on average had debt to asset ratio of 36%. This further demonstrates that debt is concentrated amongst large and growing agricultural businesses, which is possibly a major concern for agricultural lenders and regulators if a downturn occurs.

Family living withdrawals and compensation were approximately $120,000 annually, with a median of $92,000. The range was from a low of $40,000 to above $300,000.

Next time, I will give you an opportunity to benchmark management practices to those of the TEPAP participants.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.